Optimum limited company director salary and dividends 2023/24
This Essentials Guide outlines the most tax efficient salary and dividend structure for director/shareholders for the 2023/24 tax year (6th April 2023 to 5th April 2024).
Why are you receiving this guide?
As a director/shareholder of a limited company, you can decide how to pay yourself in the most tax efficient way. In previous years there has been a relatively straightforward option known as the ‘low salary / high dividend strategy’ (being an annual PAYE salary of either £9,100 or £12,570 plus dividends up to either £50k or £100k).
For 2023/24 the tax landscape is changing as from 1st April 2023 corporation tax rates will increase from 19% to up to 25% depending on your company profits (see Appendix). Taxes on personal income are changing too. This means that there are more choices around setting your optimum remuneration strategy, depending on your priorities and personal / company circumstances.
As a reminder, PAYE salary may be liable to national insurance and higher income tax rates than dividends, but salary is a tax-deductible expense for the limited company (so saves corporation tax). Dividends do not carry any national insurance liability and benefit from lower income tax rates but cannot be treated as tax-deductible expenses for the limited company.
What should I do?
For the tax year 2023/24, we would recommend that those who have previously operated a low salary / high dividend strategy, continue doing the same as this will maintain a similar net income for you personally as in previous years.
However, when considering the company corporation tax position (depending on profits) the low salary / high dividend strategy is no longer guaranteed to be the most tax-efficient strategy overall. Some comparative examples are included overleaf.
What will I be paid in 2023/24?
If you are a director with no other employees and have no other income from outside your company, you should look to pay the optimum directors’ salary of £9,100. Any additional income should be paid as dividends.
If you are a director with no other income from outside of your company but with other employees on your payroll (including family members) you can look to pay a salary of £12,570. Any additional income should be paid as dividends.
Who should seek additional advice?
There are some circumstances where the strategy above may not be right for you. If any of the following apply, we would recommend getting in touch:
- How much tax you pay or save across the combination of your company and you personally is more important than what you personally take home in cash, and you can afford to sacrifice personal take-home pay for the benefit of the company tax position.
- You are already drawing more cash than you need to fund your lifestyle.
- You are planning on drawing between £100,000 and £125,000 of income from your company.
- You have income of over £50,000 from other sources.
Your company profits are £150,000 and you want a gross income of £50,000. You have more than one employee.
- As shown below on the left a low salary/high dividend strategy will ensure net personal income (A) of £46,812. The company will retain £66,979 of profits (B).
- A high salary/low dividend strategy would result in lower net personal income (A) of £38,342 but the company will pay a lower rate of corporation tax and therefore retain a higher level of profits being £72,938 (B).
Overall (C), the position is £2,511 better by taking the low salary/high dividend strategy.
Your company profits are £150,000 and you want an income of £100,000. You have more than one employee.
- A low salary/high dividend strategy will ensure net personal income (A) of £80,005. The company will retain £16,979 of profits (B).
- A high salary/low dividend strategy would result in lower net personal income (A) of £67,469 but the company will retain a higher level of profits being £30,261 (B).
Overall (C), the position is £746 better off by taking the high dividend/low salary strategy.
It should be noted however that, in this example, while the overall position favours the high dividend/low salary strategy, LKA would not as standard recommend this course of action as your net income will reduce considerably.
DON’T FORGET!! Everyone should check their entitlement to State Pension
We recommend after the end of each tax year that you log in to your Government Gateway account (https://www.gov.uk/check-national-insurance-record) to check your National Insurance record to ensure there are no gaps in your contributions.